By Jessica Resnick-Ault
NEWYORK (Reuters) – Oil prices rose on Tuesday buoyed by prospects of a trade deal, but concerns about demand limited the gains.
Oil futures rose after China signalled progress in trade talks with the United States, but gains were capped by bearish forecasts of a buildup in U.S. crude stockpiles.
Brent crude oil <LCOc1> was up 39 cents at $59.35 a barrel by 2:07 p.m. EDT (1807 GMT), while U.S. West Texas Intermediate crude <CLc1> was 76 cents higher at $54.07 per barrel.
China and the United States have achieved some progress in their trade talks, Vice Foreign Minister Le Yucheng said on Tuesday, and any problems could be resolved as long as both sides respected each other.
“While the encouraging mood across financial markets will remain stimulated by trade optimism, risk aversion could still make an abrupt return should talks drag on or turn sour,” said Lukman Otunuga, analyst at FXTM.
The International Monetary Fund last week forecast that fallout from the U.S.-China trade war and trade disputes across the world would slow global growth in 2019 to 3.0%, the weakest in a decade.
For a graphic on Purchasing managers’ indexes, manufacturing:
Lower economic growth typically means reduced demand for commodities such as oil.
Prices were also pressured by forecasts of a buildup in U.S. crude stockpiles. Inventories are expected to have risen for a sixth straight week, while distillates and gasoline stocks likely fell in the week to Oct. 18, a Reuters poll showed.
The poll was conducted ahead of reports from the American Petroleum Institute (API), an industry group, and the Energy Information Administration (EIA), an agency of the U.S. Department of Energy.
“Expectations that the API and EIA will report that U.S. crude oil inventories increased by around 3 million barrels over the last week certainly do not help sentiment,” ING analyst Warren Patterson said.
“These more visible stock builds, along with demand concerns continuing to linger, suggest it is becoming increasingly more difficult to see a sustained rally in prices ahead of the OPEC+ meeting in early December.”
The Organization of the Petroleum Exporting Countries, Russia and other oil producers, an alliance known as OPEC+, have pledged to cut production by 1.2 million barrels per day (bpd) until March 2020. The producers meet again on Dec. 5-6.
Russian Energy Minister Alexander Novak said U.S. oil production is likely to peak in the next few years as current oil prices are capping the pace of expansion.
The brisk pace of U.S. production, now the world’s highest, in the past few years has been a key factor behind the relative weakness in oil prices. Output has slowed recently, however.
(Additional reporting by Bozorgmehr Sharafedin in London, Jane Chung in Seoul; Editing by Jan Harvey and Lisa Shumaker)